3 stock-ing stuffers from around the world

AudreyKaplan

Audrey Kaplan is a senior portfolio manager at Federated Investors Inc.,
managing the Federated InterContinental Fund, a fund that provides broad
international exposure and invests in foreign economies across both developed
and emerging markets. Kaplan has 23 years of
investing experience. Prior to joining Federated in August 2007, she managed the Rochdale Atlas Portfolio in New York, was a hedge fund strategy consultant for
BlueCrest Capital Management in London, worked in European quantitative strategy
for Merrill Lynch in London, researched global emerging markets at Robert
Fleming in London, and completed equity, fixed-income and derivative analysis
with Salomon Brothers in Tokyo and New York. Kaplan earned a B.S from Rensselaer
Polytechnic Institute and a MiF from London Business School. She is a member of
the Society of Quantitative Analysts, Stamford Society of Investment Analysts,
100 Women in Hedge Funds, and the Quantitative Work Alliance for Applied
Finance, Education and Wisdom.

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As we look for gifts this year for our equity-investor friends, we are favoring opportunities in Mexico and Brazil, China and — despite the continent's ongoing problems — Germany and much of Northern Europe.

FEMSA is a proxy of sorts for the Mexican consumer. Its Oxxo unit, a convenience-store operator, is the third-largest retailer in Mexico. It has a 66% share of the convenience market and currently operates 10,000 stores and is adding 15% a year on average, with a medium-range target of 15,000 stores. Instead of operating regionally, Oxxo also is among a few Mexican retailers with national distribution, providing both diversity and scale benefits.

FEMSA has several other potential price-appreciation drivers, as well, including a recently acquired drugstore business with more than 300 stores, giving it a foothold in Mexico's fragmented but growing pharmaceutical sector.

China

Across the Pacific, we've remained favorable with an out-of-consensus view on the potential of the Chinese economy and equity markets, where we believe the markets are not acknowledging the significant amount of flexibility its government has from both fiscal and monetary perspectives.

While pockets of China's economy may be slowing, China's domestic economy appears to be strengthening, abetted by a booming middle class. The world's second-largest economy continues to expand rapidly as the country shifts its focus from low-end exports to higher value-added goods and to domestic-led growth. Third-quarter GDP grew at 7.4%, industrial production recovered from summer lows to close the reporting period up 10.1%, and the Chinese labor market remains healthy with the 4.1% unemployment rate in September.

In addition to monetary easing, the Chinese government, which successfully transitioned to new leadership in November, continues to invest in infrastructure, spending more than $158 billion on subway projects, highway construction and sewage treatment plants

With airline traffic closely and positively linked to economic expansion, a primary beneficiary of China's continuing and potentially reaccelerating growth is Air China
601111, -2.68%
We expect Air China to be able to consistently grow its capacity about 10% per year, in line with anticipated GDP growth and well above the global growth rate in airline traffic. While many growth markets face increasing competition from low-cost carriers, Air China benefits from the protectionist nature of its government, which has established an airline oligopoly to protect the market share of its "Big Three" airlines, especially is official national flag carrier, Air China.

It also stands to benefit from near-term and longer-term structural changes: a projected 250 million new middle-class households over the next eight to 10 years, which should drive up China's relatively low flights per capita; a pickup in cargo traffic once European and U.S. growth enters a period of cyclical rebound; and given Air China's leading position in the important Beijing hub, increasing international passenger traffic once euro sovereign and U.S. fiscal-cliff risks are resolved and overseas travel reaccelerates.

Europe

Lastly, while pervasive concerns about a European recovery remain, there are many companies in Europe, particularly in Germany and Northern Europe, which are bright spots that provide attractive long-term opportunities.

We favor German investments, as companies are operating in a strong, high-quality sovereign economy with a cheap euro currency and low borrowing costs. These circumstances are positive for corporate Germany.

For example, at its current valuation level (due to macro-economic risks of Europe, not micro-economic company risks), Daimler
DAI, -0.77%
is very attractive. Significant growth is occurring in the premium auto segment, where Daimler excels, and management has set a production target of 1.6 million cars by 2015, up from 1.28 million currently. Also, the company is going through a standardization effort across all automobile platforms, which may provide significant cost savings combined with restructuring and export opportunities.

As with Femsa and China Airlines, Daimler also has multiple growth drivers. While it is well known for its premium luxury brands, it is also operating a successful truck and van business. We do not think the expected 40% growth in truck production over the next two to three years is reflected in Daimler's current price, thus providing a basis of potential price appreciation the next few years.

We also continue to see strong auto sales in the United States, in addition to China (whose per-capita auto ownership level is similar to Japan in the 1950s and where premium auto sales are forecast to grow 15%-20% per year over the next couple of years) and much of the developing world.

These three companies all have key primary and several secondary share price drivers. While there are risks with overseas investing, there are also numerous rewards. Investing globally provides a world of investment opportunities — we have highlighted three on as many continents. It's up to you whether to include them in your gift-giving this year. Happy holidays!

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